The nature of the Medicaid program, a federal-state partnership, means these skyrocketing costs have strained federal and state resources, prompting action through both policy and legislation. This blog walks through recent federal action aiming to slow rising drug costs in Medicaid.

“American Patients First”

In May, the Trump Administration outlined proposals to lower drug costs and reduce out of pocket spending in a blueprint entitled “American Patients First.” The blueprint contains several proposals aimed at the Medicaid program. Although the proposals will require legislative and/or regulatory action, the blueprint offers a glimpse of how the administration would like to take to tackle rising drug costs. This blueprint also can serve as a tool for policymakers and providers working to identify and pursue innovative policy levers.

Capping Medicaid Rebates

One of the main proposals in the blueprint would sunset an Affordable Care Act (ACA) cap on manufacturer rebates for brand and generic drugs in the Medicaid program; the cap limits such rebates to 100 percent of the average manufacturer price. Specifically, the blueprint calls for the development of new proposals regarding the ACA’s maximum rebate amount provision in the Medicaid Drug Rebate Program (MDRP). The administration believes that removing or significantly increasing the rebate cap would discourage manufacturers from increasing the list price for any drug for which Medicaid collects rebates. In July 2018, House Energy & Commerce Subcommittee on Health Chair Michael Burgess (R-TX) introduced H.R. 6642, which would implement this proposal effective Jan. 1, 2019. The legislation has stalled, but it could gain traction after midterm elections if Republicans maintain control of Congress.

Closed Formulary

The blueprint also proposes a five-state demonstration project that would allow states to exclude drugs from their formularies (i.e., create a closed formulary) as a means of negotiating more favorable drug prices from manufacturers instead of participating in the MDRP.

Interestingly, the Centers for Medicare & Medicaid Services (CMS) recently denied Massachusetts’ waiver request to create a closed formulary for Medicaid outpatient prescription drugs. The waiver would have permitted the state to pursue a selective and potentially more cost-effective specialty pharmacy network. While CMS expressed support of Massachusetts’ efforts to reduce drug costs, the agency rejected the formulary because the waiver application failed to meet certain MDRP criteria. The agency offered technical assistance in identifying other innovative drug coverage options.

Arizona considered a similar initiative in late 2017 and submitted a concept to CMS. However, as it was not a formal request for approval by the agency, CMS and the state took no further action. It is unclear whether Arizona will resurrect efforts to implement a closed formulary.

Reporting and Transparency

The blueprint proposes to remove ambiguity over drug reporting in Medicaid, as federal Medicaid rebates vary based on whether the drug is generic and other distinctions. Specifically, the blueprint proposes to direct CMS to improve Medicaid drug price transparency by highlighting products for which prices have no increased and updating the agency’s drug pricing dashboard.

In October, CMS issued a proposed rule that would require prescription drug manufacturers to post the wholesale acquisition cost for drugs covered in Medicare or Medicaid in direct-to-consumer television advertisements. Under the proposal, manufacturers would have to post the price of a typical course of treatment for an acute medication, like an antibiotic, or a 30-day supply of medication taken every month for a chronic condition. The cost would have to be legible at the end of the ad. Further, the Health and Human Services secretary would maintain a public list of advertised drug in violation of this rule. As proposed, CMS would provide an exception for prescription drugs with list prices of less than $35 per month.

Finally, CMS is expected to issue a proposed rule in June 2019 that would change the Medicaid drug rebate program to support VBP arrangements between states and manufacturers. America’s Essential Hospitals will continue to monitor agency action on this issue.